Hardware giant Lowe’s selling Canadian retail operations, including RONA, to private-equity firm
Nicolas Van Praet, Globe and Mail
November 03, 2022 | Updated 49 minutes ago
U.S. hardware giant Lowe’s Cos. is cutting loose its Canadian retail operations after a frustrating six-year run.
Lowe’s has struck a deal to sell about 450 stores in Canada that operate under the Lowe’s, Rona, Reno-Depot and Dick’s Lumber banners, the Mooresville, N.C. company said Thursday after markets closed. The buyer is New York private equity firm Sycamore Partners, which is buying the stores for US$400-million in cash plus unspecified performance-based benefits.
Lowe’s entered the Canadian market in 2016, buying Rona for $3.2-billion. The sale is a recognition by the company that it couldn’t make the takeover work. The business has struggled and Lowe’s has cut jobs and closed dozens of stores in several provinces.
With the transaction, Lowe’s becomes the latest company to prove that cross border expansion between Canada and the United States isn’t always as easy as it seems. The retail landscape is littered with companies based in both countries that have pulled back, including U.S. big box department store chain Target and Wal-Mart’s Sam’s Club.
For Rona, it will likely be the beginning of another period of turbulence. Private equity firms typically hold on to investments for a limited period of time and the chain is almost certainly headed toward new ownership after Sycamore decides the time is right to sell.
“Sycamore will be squeezing the lemons” in a bid to improve Rona’s financials and attract new ownership, said Louis Hébert, a specialist in corporate strategy at HEC Montréal business school. “And that means the supply chain, merchandising, employees will all be affected.”
Lowe’s chairman and chief executive Marvin Ellison called the sale “an important step” towards simplifying Lowe’s business model. He said while the Canadian business represents about 7 per cent of Lowe’s expected 2022 sales, it would also dilute the company’s overall operating profit margin for the year.
Lowe’s said it will take a pre-tax charge of US$2-billion related to the Canadian division.
Antonio Filato, spokesman for the UFCW union local representing 3,000 Lowe’s Canadian workers, said the labour group was “worried” about the deal being announced. In a message on the union website, he said his priority would be to meet the new owners and get assurances that the collective agreements in force will be respected.
Sycamore Partners, which specializes in retail and consumer investments, struck an upbeat tone in its comments on the takeover.
“We are honoured to partner with Lowe’s to establish Lowe’s Canada and Rona as a stand-alone company headquartered in Boucherville, Quebec,” Stefan Kaluzny, the firm’s managing director, said in a statement. “We look forward to working with the company’s management team to build on its 83-year history as a leading Canadian home improvement business serving families, builders, and contractors in their communities across the country.”
The government of Jean Charest opposed an initial offer from Lowe’s for Rona in 2012 but the U.S. chain roared back four years later with an improved offer and eventually won political support for a deal.
Opposition parties at the time said the government should not have allowed one of Quebec’s flagship companies to be sold to a U.S. rival, particularly as Rona was a major employer and buyer of locally made goods. They said a decision by the government’s investment arm, Investissement Québec, to unload its 11 million shares in Rona helped open the door to a takeover. Pension fund manager Caisse de dépôt et placement du Québec also supported the transaction.
Regardless, Lowe’s never quite found its footing in Canada.
When Lowe’s said in 2019 it would close 34 stores across six provinces and cut more jobs, the announcement touched off another round of questions by Quebec’s political leaders about whether employment guarantees sought by the federal government as a condition for approving the Rona takeover were enough. And they raised new concerns that consumers in the province were starting to sever their relationship with Rona, a homegrown company they once adored.
“I think that sadly what we’re seeing in Quebec, rightly or wrongly, is a sort of rupture with the Rona brand,” Pierre Fitzgibbon, Quebec’s Economy Minister, said at the time. “There are many independent [Rona] retailers that don’t deserve that. But it’s a reality.”
A spokesman for Mr. Fitzgibbon did not answer a message Thursday evening seeking comment.
https://www.theglobeandmail.com/business...nadian-retail-operations-including-rona/
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